‘Extreme’ rent control could be coming to California soon

Rent control fight comes to Sacramento

On Jan. 11, 2018, activists advocate for a bill to expand rent control in California.

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On Jan. 11, 2018, activists advocate for a bill to expand rent control in California.

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A costly and potentially bruising campaign is taking shape over rent control in California, with deep-pocketed Los Angeles activist Michael Weinstein bankrolling a proposed November ballot initiative to repeal a state law that sets tight limits on the type of housing covered under local rent control laws.

“Nobody’s fighting for the tenant,” said Weinstein, president of AIDS Healthcare Foundation, who partly funded the Proposition 61, the 2016 fight over prescription drug costs that became the most expensive initiative that year, with total spending at roughly $130 million.

As California confronts a historic housing crisis, low- and middle-income renters are being pushed out, even in cities with some form of rent control.

The disruption is fueling the push by Weinstein and other tenants rights’ activists to overturn a state law that prevents cities and counties from adopting strong rent control laws.

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Proponents say they have been met with enthusiasm this year while gathering signatures for a proposed November ballot initiative that would repeal the 1995 Costa-Hawkins Rental Housing Act, which says rent control cannot apply to large amounts of housing, including all housing built after 1995, single-family homes, condos and duplexes. If the proposed initiative is successful, efforts by local communities to strengthen existing rent control ordinances and pass new laws could drastically alter the housing market across California.

“People are excited,” said Anya Svanoe, a spokeswoman for the Alliance of Californians for Community Empowerment, also behind the campaign. “This is the easiest signature-gathering we’ve ever done. It’s telling ... People are hungry for rent control and ... to see solutions to the housing crisis that can provide immediate relief to themselves and their neighbors.”

Renters and other advocates came to the California Capitol Jan. 11, 2018 to support expansion of local rent control laws. They protested during a committee hearing in the Assembly, but lawmakers killed the bill they supported.

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Critics, including the California Apartment Association, believe repeal would lead to “extreme versions” of rent control throughout the state, bringing new housing construction to a standstill.

“It’s a disincentive for the construction of new, multifamily housing,” said Tom Bannon, CEO for the apartment association, a group representing landlords, investors and developers. His argument – that rent control deters new construction because it limits profit and financing options – is backed by other powerful real estate interests and construction trades groups in Sacramento, including the California Chamber of Commerce and the California Building Industry Association.

Supporters, on the street for just two weeks, have collected 100,000 signatures. They need 365,880 valid signatures by June to qualify for the November ballot. If the current law is repealed, any city or county in California could require rent control on any type of housing it chooses.

The campaign, with real estate interests on one side and tenants’ rights activists on the other, could become the most expensive initiative this November.

“Money wise, this could be the grand poobah of them all because of what’s at stake,” said Steve Maviglio, a Sacramento-based Democratic political consultant. “On one side you have a multimillionaire fighting for rent control, and the (California) Apartment Association on the other ... both sides have deep pockets, so it could be a very expensive battle. The question is whether it will overshadow other issues on the ballot designed to help housing.”

More housing needed in state

Housing is a top concern among the state’s electorate. More than half of California voters say the state’s housing affordability crisis is so bad that they’ve considered moving, and 60 percent of likely voters support rent control, according to a statewide poll last fall. Both sides of the rent control battle have also poured money into ballot box fights in recent years.

There is widespread agreement, among Democrats and Republicans and between pro-growth activists and those concerned about tenant displacement, that California must build more housing to address its affordability problems. The state needs about 200,000 housing units per year to keep pace with rising demand, though it is building an average of roughly 80,000 units per year.

Rents in California, the most expensive in the nation, have gone up more than 40 percent in major metropolitan areas since 2015, according to a January housing analysis by the Public Policy Institute of California. Median rents for all types of rental housing range from $1,595 in Sacramento, to $4,395 in San Francisco, to $2,933 in Los Angeles, according to the real estate listing service Zillow.

Nearly half of Californians – 47 percent – say the state’s high housing costs are a financial strain on themselves and their families, according to the Public Policy Institute analysis. That figure is higher among renters, with 61 percent saying they are financially burdened.

Backers of the Costa-Hawkins repeal say building the housing California needs will take decades, and tenants facing big rent increases need help now.

“There’s no building our way out of this crisis,” said Damien Goodmon, director of the AIDS Healthcare Foundation’s “Housing is a Human Right” campaign. “We have no illusion ... that this will be costly and ugly.”

“I expect it to qualify,” said Allan Zaremberg, the Chamber’s president and CEO. “We’re concerned about increases in the cost of housing and being able to keep people in California. The consequences of a strong economy and an inability to keep up with the demand for housing is a problem we need to solve, but we believe that rent control diminishes investment in housing opportunities.

“It costs more money to build (in California),” Zaremberg said. “If you can’t recover those costs, you’re less likely to put your money into a development.”

Jeff Pemstein, a board member for the state Building Industry Association, acknowledged that economically thriving cities like San Francisco, which has rent control, have experienced a building boom, but he argued developers in other markets, like Sacramento, cannot absorb the high costs of construction, labor and permitting on top of rent control.

“People will pay astronomical prices to live in niche markets like San Francisco. They are super desirable so you can afford to put up with a lot of inconvenience, but the vast majority of California cannot afford to do that,” said Pemstein, also division president for Towne Development of Sacramento, which finances all types of development including rental housing and single-family homes.

Financial backer blames Legislature

Weinstein, behind two unsuccessful 2016 ballot initiatives that sought to require condoms in porn production and to cap state prescription drug costs to the lowest price paid by the U.S. Department of Veteran Affairs, said he’d prefer the Legislature to take up repeal, but that doesn’t appear likely.

He said he’s financing the proposed initiative because he has witnessed firsthand what he perceives as consequences of the state’s housing problems.

“We’re seeing a growing homelessness crisis, our employees have to travel farther and farther to work and people are being displaced by the thousands,” Weinstein said. “Everything the Legislature is doing is geared toward creating luxury housing, not preserving the housing stock for people who are low- and moderate-income.”

He said local communities ought to be able to address the issue themselves.

“The fundamental question here isn’t even the merits of rent control. The real question is why shouldn’t cities be deciding this?” Weinstein said. “Why is the Legislature taking away all the authority over land use from cities?”

Weinstein declined to say how much money he is prepared to spend, but it would likely be millions. Through his campaign committee, Weinstein spent more than $18 million on his drug pricing initiative – the most expensive in 2016 – and more than $3 million on the condoms measure.

The apartment association is prepared to spend tens of millions, Bannon said.

“If Mr. Weinstein spends $10 to $20 million, we would have to spend at least that much,” Bannon said. “If he spends $40 million, we’d have to spend $40 million.”

Backlash over high housing costs has spurred local rent control campaigns across the state over the past three years. The apartment association has spent about $1.5 million to beat back local campaigns that sought to impose rent control on multifamily apartment complexes built before 1995, proposed through local ballot measures or city councils. Its attempts to defeat rent control have failed in some areas, with Richmond voters in 2016 passing a rent control ordinance that limits how much landlords are allowed to raise rents to 3 percent annually. It has succeeded in other parts of the Bay Area, including Santa Rosa, where a 2017 proposal failed with 52.5 percent of voters opposed.

Meanwhile, local rent control campaigns are budding this year in Sacramento, Santa Cruz, Long Beach, Inglewood and Pasadena. Repealing Costa-Hawkins would allow them to cover more units in local ordinances, if they so choose.

Assemblyman David Chiu, D-San Francisco, who served as president of the city’s Board of Supervisors for six years before being elected to state office, said cities with existing laws, like San Francisco, could benefit from repeal.

“While not perfect, rent control has been one of the very few policies that has protected some level of economic diversity in San Francisco,” Chiu said. “If rent control disappeared tomorrow, our city would only be affordable to those who make six-figure incomes. It has worked in San Francisco and elsewhere ... Cities are crying out for relief.”